This 2-page document provides a heads-up to the most common legal problems sweepstakes and contest sponsors encounter.

Prize Promotion Traps for the Unwary

Prize promotions (sweepstakes, contests, etc.) are a popular marketing tool for a variety of reasons. Not only can they encourage customer loyalty and (potentially) new purchases, but even more importantly, they allow advertisers to collect invaluable demographic and contact information about consumers. After all, in order to compete for a prize, an entrant must provide the advertiser with their contact information, and in order to ensure eligibility, the entrant may be required to give her age. The entry form may also include other questions which, to the extent they generate accurate answers, only add to the advertiser’s database. In addition, prize promotions can help drive traffic to a brand’s website and obtain followers on social media sites.

Prize promotions are of course subject to legal compliance, which can be burdensome. Choosing to run a prize promotion on the Internet, though, adds significant additional concerns about which an advertiser must be aware. Some of these concerns include:

Alternative method of entry. Enforcement actions by the New York Attorney General cast doubt on whether only having an alternative method of entry via the Internet alone is sufficient to meet a no purchase method of entry requirement. A conservative advertiser would want to allow people to enter the sweepstakes using the traditional 3x5 mail in entry.

Being a victim of your own success. Advertisers targeting a specific industry or demographic will try to limit publicity of the promotion to the target audience. That way, the information collected as part of the promotion will be relevant, and the operation of the promotion kept to a manageable size. Prize promotions on the Internet, though, run the risk of being discovered by search engines, and publicized through direct links from online “professional sweepstakers” Web sites and e-mail lists. The resulting deluge of entries may well drown out the useful data in a sea of irrelevant facts, destroying the value of the promotion for the advertiser as well as raising the costs of sorting the entrants.

Social media promotion guidelines count. In addition to federal and state sweepstakes laws, advertisers must be mindful of social media prize promotion guidelines, which vary greatly and frequently change.

Collecting too much information for your own good. In the U.S., the rise of the Internet has driven new privacy laws and rules which may not apply offline. One major example is COPPA, the Children’s Online Privacy Protection Act. COPPA prohibits the knowing collection online of personal information from children under 13 without verifiable parental consent. COPPA violations can be serious and expensive. A prize promotion run online which asks an entrant’s age and collects the entrant’s name and address could result in a costly COPPA violation for an advertiser if the entrant was 12 or younger, even if the same circumstance offline would not be a legal violation, and even if the child were not eligible to win a prize by virtue of his age.

Watch out for fraud and other user-generated content promotions. Frequently, social media promotions involve some sort of user voting mechanism or use posting requirement. While they may be great marketing techniques, they are after a target for fraud and abuse.

Spanning the globe. The Internet has no geographic borders, so any online prize promotion is at least theoretically accessible throughout the world. Even if (as is highly likely) the advertiser limits prize eligibility to residents of the U.S. (and possibly Canada), owing to the legal challenges of running an international prize promotion, the advertiser may still get entries from many countries. People in other regions may get upset if they are not eligible to win prizes, leading to bad feelings about the advertiser. Another possible problem is that the advertiser running an online sweepstakes may be violating its own territory or other contracts or even licenses which provide geographic restrictions on its marketing and business activities.

These aren’t the only potential risks that an advertiser faces when using the Internet to run a prize promotion—other issues, such as email marketing laws and even Internet gambling restrictions, can be relevant as well. At the same time, though, advertisers should not be scared away from the Internet and social media as a medium for reaching current and potential customers, whether through a prize promotion or any other methodology. Instead, they should make an informed decision, based upon both the power and pitfalls inherent in the medium, and work with attorneys and other experienced professionals to ensure the promotion is legal, efficient and produces the desired results. In this way, every advertiser can be a winner when it comes to online prize promotions.